Publication: How Might Climate Change Affect Economic Growth in Developing Countries? A Review of the Growth Literature with a Climate Lens
Date
2007-08
ISSN
Published
2007-08
Author(s)
Lecocq, Franck
Shalizi, Zmarak
Abstract
This paper reviews the empirical and
theoretical literature on economic growth to examine how the
four components of the climate change bill, namely
mitigation, proactive (ex ante) adaptation, reactive (ex
post) adaptation, and ultimate damages of climate change
affect growth, especially in developing countries. The
authors consider successively the Cass-Koopmans growth model
and three major strands of the subsequent literature on
growth: with multiple sectors, with rigidities, and with
increasing returns. The paper finds that although the growth
literature rarely addresses climate change per se, some
issues discussed in the growth literature are directly
relevant for climate change analysis. Notably, destruction
of production factors, or decrease in factor productivity
may strongly affect long-run equilibrium growth even in
one-sector neoclassical growth models; climatic shocks have
had large impacts on growth in developing countries because
of rigidities; and the introducing increasing returns has a
major impact on growth dynamics, in particular through
induced technical change, poverty traps, or lock-ins. Among
the most important gaps identified in the literature are
lack of understanding of the channels by which shocks affect
economic growth, lack of understanding of lock-ins, heavy
reliance of numerical models assessing climate policies on
neoclassical-type growth frameworks, and frequent use of an
inappropriate "without climate change" counterfactual.
Citation
“Lecocq, Franck; Shalizi, Zmarak. 2007. How Might Climate Change Affect Economic Growth in Developing Countries? A Review of the Growth Literature with a Climate Lens. Policy Research Working Paper; No. 4315. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/7260 License: CC BY 3.0 IGO.”
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